How much does disability insurance cost?
As a general rule of thumb, an individual long term disability insurance costs about 1% to 3% of your annual salary. This chart below gives you an idea of approximately what you could expect to pay for your disability insurance based on your earnings.
|$30,000||$300 – $900||$25 – $75|
|$50,000||$500 – $1500||$60 – $125|
|$100,000||$1000 – $3000||$83 – $250|
|$150,000||$1500 – $4500||$125 – $375|
|$200,000||$2000 – $6000||$166 – $500|
Disability insurance cost depends on several factors. They include:
- Benefit amount. Long-term disability insurance typically replaces between 40% to 65% of your pre-tax earnings. The higher that percentage is, the more your disability insurance will cost.
- Benefit period. The length of time you’d be eligible to receive disability insurance income can range from a few months to until you reach retirement age. Your disability insurance cost generally increases as the benefit period increases.
- Elimination period length. Nearly every disability insurance policy has a waiting period before you can receive benefits after suffering an injury or illness. It’s known as the “elimination period” and you can think of it as a deductible measured in time instead of money. The elimination period can last anywhere from a few days for short term disability insurance to two years for long term disability insurance. By choosing a longer elimination period, you can reduce your disability insurance cost.
- Your age. Because your likelihood of suffering an injury or illness increases as you get older, your disability insurance cost will increase as you age. Buying disability insurance when you’re young is often a smart move because it’s cheaper and you may be able to lock in a low rate.
- Your health. You will likely pay more for disability insurance if you’re in poor health, smoke or if you or your family has a history of chronic disease. Some disability insurance companies let you exclude an illness or disability you already have—just know that you won’t be able to collect disability insurance income if the excluded illness or injury makes it impossible for you to work.
- Your occupation. The risks of your job and the salary it commands also factor into your disability insurance cost. More dangerous jobs and jobs that pay a high salary are typically more expensive to insure.
- Your hobbies. Participating in risky hobbies like skydiving will often increase the cost of your disability insurance.
- Your gender. Disability insurance can cost more for women or for men depending on their age. In general, men tend to pay more as they age.
- The definition of disability. There are two disability definitions that disability insurance companies use:
- Own occupation disability insurance kicks in when you can no longer perform the job you had when you became disabled. An example would be a painter who suffers a hand injury.
- Any occupation disability insurance only kicks in if you can’t perform any job at all. To use the example above, the painter could earn an income from teaching or lecturing about painting.
Own occupation disability insurance generally costs more than any occupation disability insurance.
- Riders. Riders are additional coverages you can choose to add to your disability insurance policy. Depending on the disability insurance company, you may or may not be charged to add them to your policy. Three common disability insurance riders are:
- Guaranteed renewable rider means your disability insurance policy cannot be canceled as long as you pay your premiums. Some variations on this rider let you lock in your disability insurance rate as well.
- Inflation protection rider lets you add a cost-of-living adjustment to your disability insurance policy. It increases your disability insurance income by a specified percentage after each year of disability.
- Residual benefits rider pays partial disability insurance benefits if a disability reduces your income but you can still work in some capacity.
There are many different kinds of disability insurance policies out there that can be customized to your exact needs and budget. The best way to learn more about disability insurance and to get a disability insurance quote is from a licensed insurance agent. Check out our agent locator to get started.